26 U.S.C. § 23 : US Code - Section 23: Adoption expenses

Search 26 U.S.C. § 23 : US Code - Section 23: Adoption expenses

(a) Allowance of credit
(1) In general
In the case of an individual, there shall be allowed as a
credit against the tax imposed by this chapter the amount of the
qualified adoption expenses paid or incurred by the taxpayer.
(2) Year credit allowed
The credit under paragraph (1) with respect to any expense
shall be allowed -
(A) in the case of any expense paid or incurred before the
taxable year in which such adoption becomes final, for the
taxable year following the taxable year during which such
expense is paid or incurred, and
(B) in the case of an expense paid or incurred during or
after the taxable year in which such adoption becomes final,
for the taxable year in which such expense is paid or incurred.
(3) $10,000 credit for adoption of child with special needs
regardless of expenses
In the case of an adoption of a child with special needs which
becomes final during a taxable year, the taxpayer shall be
treated as having paid during such year qualified adoption
expenses with respect to such adoption in an amount equal to the
excess (if any) of $10,000 over the aggregate qualified adoption
expenses actually paid or incurred by the taxpayer with respect
to such adoption during such taxable year and all prior taxable
years.
(b) Limitations
(1) Dollar limitation
The aggregate amount of qualified adoption expenses which may
be taken into account under subsection (a) for all taxable years
with respect to the adoption of a child by the taxpayer shall not
exceed $10,000.
(2) Income limitation
(A) In general
The amount allowable as a credit under subsection (a) for any
taxable year (determined without regard to subsection (c))
shall be reduced (but not below zero) by an amount which bears
the same ratio to the amount so allowable (determined without
regard to this paragraph but with regard to paragraph (1)) as -

(i) the amount (if any) by which the taxpayer's adjusted
gross income exceeds $150,000, bears to
(ii) $40,000.
(B) Determination of adjusted gross income
For purposes of subparagraph (A), adjusted gross income shall
be determined without regard to sections 911, 931, and 933.
(3) Denial of double benefit
(A) In general
No credit shall be allowed under subsection (a) for any
expense for which a deduction or credit is allowed under any
other provision of this chapter.
(B) Grants
No credit shall be allowed under subsection (a) for any
expense to the extent that funds for such expense are received
under any Federal, State, or local program.
(4) Limitation based on amount of tax
In the case of a taxable year to which section 26(a)(2) does
not apply, the credit allowed under subsection (a) for any
taxable year shall not exceed the excess of -
(A) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
(B) the sum of the credits allowable under this subpart
(other than this section) and section 27 for the taxable year.
(c) Carryforwards of unused credit
(1) Rule for years in which all personal credits allowed against
regular and alternative minimum tax
In the case of a taxable year to which section 26(a)(2)
applies, if the credit allowable under subsection (a) for any
taxable year exceeds the limitation imposed by section 26(a)(2)
for such taxable year reduced by the sum of the credits allowable
under this subpart (other than this section and sections 25D and
1400C), such excess shall be carried to the succeeding taxable
year and added to the credit allowable under subsection (a) for
such taxable year.
(2) Rule for other years
In the case of a taxable year to which section 26(a)(2) does
not apply, if the credit allowable under subsection (a) for any
taxable year exceeds the limitation imposed by subsection (b)(4)
for such taxable year, such excess shall be carried to the
succeeding taxable year and added to the credit allowable under
subsection (a) for such taxable year.
(3) Limitation
No credit may be carried forward under this subsection to any
taxable year following the fifth taxable year after the taxable
year in which the credit arose. For purposes of the preceding
sentence, credits shall be treated as used on a first-in first-
out basis.
(d) Definitions
For purposes of this section -
(1) Qualified adoption expenses
The term "qualified adoption expenses" means reasonable and
necessary adoption fees, court costs, attorney fees, and other
expenses -
(A) which are directly related to, and the principal purpose
of which is for, the legal adoption of an eligible child by the
taxpayer,
(B) which are not incurred in violation of State or Federal
law or in carrying out any surrogate parenting arrangement,
(C) which are not expenses in connection with the adoption by
an individual of a child who is the child of such individual's
spouse, and
(D) which are not reimbursed under an employer program or
otherwise.
(2) Eligible child
The term "eligible child" means any individual who -
(A) has not attained age 18, or
(B) is physically or mentally incapable of caring for
himself.
(3) Child with special needs
The term "child with special needs" means any child if -
(A) a State has determined that the child cannot or should
not be returned to the home of his parents,
(B) such State has determined that there exists with respect
to the child a specific factor or condition (such as his ethnic
background, age, or membership in a minority or sibling group,
or the presence of factors such as medical conditions or
physical, mental, or emotional handicaps) because of which it
is reasonable to conclude that such child cannot be placed with
adoptive parents without providing adoption assistance, and
(C) such child is a citizen or resident of the United States
(as defined in section 217(h)(3)).
(e) Special rules for foreign adoptions
In the case of an adoption of a child who is not a citizen or
resident of the United States (as defined in section 217(h)(3)) -
(1) subsection (a) shall not apply to any qualified adoption
expense with respect to such adoption unless such adoption
becomes final, and
(2) any such expense which is paid or incurred before the
taxable year in which such adoption becomes final shall be taken
into account under this section as if such expense were paid or
incurred during such year.
(f) Filing requirements
(1) Married couples must file joint returns
Rules similar to the rules of paragraphs (2), (3), and (4) of
section 21(e) shall apply for purposes of this section.
(2) Taxpayer must include TIN
(A) In general
No credit shall be allowed under this section with respect to
any eligible child unless the taxpayer includes (if known) the
name, age, and TIN of such child on the return of tax for the
taxable year.
(B) Other methods
The Secretary may, in lieu of the information referred to in
subparagraph (A), require other information meeting the
purposes of subparagraph (A), including identification of an
agent assisting with the adoption.
(g) Basis adjustments
For purposes of this subtitle, if a credit is allowed under this
section for any expenditure with respect to any property, the
increase in the basis of such property which would (but for this
subsection) result from such expenditure shall be reduced by the
amount of the credit so allowed.
(h) Adjustments for inflation
In the case of a taxable year beginning after December 31, 2002,
each of the dollar amounts in subsection (a)(3) and paragraphs (1)
and (2)(A)(i) of subsection (b) shall be increased by an amount
equal to -
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting "calendar year 2001" for "calendar
year 1992" in subparagraph (B) thereof.
If any amount as increased under the preceding sentence is not a
multiple of $10, such amount shall be rounded to the nearest
multiple of $10.
(i) Regulations
The Secretary shall prescribe such regulations as may be
appropriate to carry out this section and section 137, including
regulations which treat unmarried individuals who pay or incur
qualified adoption expenses with respect to the same child as 1
taxpayer for purposes of applying the dollar amounts in subsections
(a)(3) and (b)(1) of this section and in section 137(b)(1).